A New Corporate Giving Threshold
One of the bill’s most immediate effects is the introduction of a 1% minimum giving threshold for corporations seeking charitable tax deductions. While intended to promote more impactful corporate philanthropy, this provision may discourage smaller and mid-sized businesses, those that historically give below 1% of taxable income, from contributing at all, potentially narrowing support for local and community-based nonprofits.
Mixed Signals for Individual Donors
Individual giving has also undergone a structural shift. To qualify for an itemized charitable deduction, donors must now exceed a 0.5% adjusted gross income (AGI) floor, and the deduction rate itself has dropped from 37% to 35%. On the other hand, the bill introduces a permanent above-the-line charitable deduction of $1,000 for individuals and $2,000 for joint filers who don’t itemize. This could expand the donor base by encouraging more participation from lower- and middle-income households, even as it potentially reduces incentives for higher-capacity donors.
Excise Tax Pressures on Educational Institutions
Private foundations were spared the originally proposed tiered excise tax structure and will continue to pay a flat 1.39% tax on net investment income. However, private colleges and universities now face a tiered excise tax on endowment investment income based on the endowment-per-student ratio:
- $500,000–$749,999 per student → 1.4%
- $750,000–$1.249 million → 4%
- $1.25 million–$1.999 million → 6%
- $2 million and above → 8%
The tax applies to institutions with at least 3,000 tuition-paying students. Some schools may now revise spending strategies or reclassify assets to remain below tax thresholds, with potential implications for financial aid, student enrollment, and long-term endowment growth.
Expanded Compensation Excise Tax and UBIT Rules
The bill expands the 21% excise tax on nonprofit compensation beyond just the top five highest-paid employees. Now, any employee or former employee of a tax-exempt organization earning over $1 million annually is subject to this tax. This change will particularly affect large hospitals, universities, and national nonprofits with competitive executive compensation.
Additionally, the bill restores Unrelated Business Income Tax (UBIT) treatment for certain fringe benefits, including commuter parking and transit passes, adding to the operational and compliance burden for nonprofits.
Increased Demand, Reduced Flexibility
Perhaps most significantly, these tax reforms arrive amid broader federal cuts to safety-net programs, including SNAP, AmeriCorps, and community development funding. As public resources shrink, the burden on nonprofits to fill service gaps will likely grow, just as incentives and flexibility for private giving become more constrained.
In sum, while the One Big Beautiful Bill aims to modernize charitable giving and broaden participation, it also introduces new challenges for funders and nonprofits alike. From altered tax incentives to expanded compliance burdens, organizations will need to reassess strategies, engage donors differently, and prepare for increased demand with fewer traditional supports. Navigating this new landscape will require agility, collaboration, and a renewed focus on mission-driven impact.